Is Zune really targeting iPod?

Stan Beer
Monday, 02 October 2006 23:17

Opinion and Analysis

Microsoft has had to sacrifice a lot to bring Zune to market. Some analysts say that it has even gone to the point of sacrificing profits once again to win marketshare. The question is does Microsoft really believe it can win marketshare off Apple in the music player space?

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Depending on who you listen to, iPod has between 75% and 80% marketshare in North America and somewhat less but still a dominant share in Europe. It has a huge installed base, huge brand recognition and huge customer loyalty. iPod is going to be one tough nut to crack, even for a company with the resources of Microsoft.

However, there is a fragmented market of 20% to 25% in North America and more elsewhere of music players that use Microsoft's own PlaysForSure DRM.

Companies, such as Sandisk, Creative and iRiver, are far more vulnerable to entry of Zune into the market. While Zune, like iPod, will be incompatible with PlaysForSure, Microsoft could entice PlaysForSure users over to the Zune camp with incentives to bring their music with them. That's exactly the sort of behaviour one has come to expect from Microsoft.

Microsoft is inexperienced in the music player business. However, the company has incredible resources. The best way to get a foothold of say 10% to 15% in a relatively short time will be to attack the smaller players. After consolidating its position as the clear number two player for a couple of years, it may be ready to launch an attack on Apple.

Microsoft itself acknowledges that making an impact in the music space will be a hard road that could take five years and Apple will not be standing still. However, Steve Jobs is not likely to forget what Microsoft did to his company once before and he won't be taking Zune lightly.

Come holidays, however, the most likely scenario will be booming sales of both Zune and iPod. Unfortunately for some smaller music player makers, the end of 2006 may be the beginning of the end.